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How to Build a Basic Budget

Original post by C. Taylor of Demand Media

The first step to becoming financially responsible is knowing where your money goes. Building a basic budget will help you do track your income and expenses. This budget is essentially a categorized list of income and expense that helps you analyze your cash flows and identify areas where you can save money.

Contents

Step 1

Calculate your total monthly take-home income. This figure should include any income you can use for your monthly bills. Do not include money paid to taxes, as that is not available for use. This total is your foundation for building a budget, because however you arrange you budget, it cannot exceed this amount.

Step 2

Create a priority list that includes essential items. Your mortgage or rent, electricity, water, groceries, cell phone, insurance and debt-related bills. Use your previous check stubs, credit card statements and receipts to help you calculate the average monthly expense related to each. If you are uncertain, overestimate the cost; it's better to have money left over at the end of the month than come up short.

Step 3

Create a second list that contains non-essentials. Entertainment costs, dining out, cable TV and frivolous purchases would fall into this category. As before, include an average monthly cost for each item.

Step 4

Total the expenses in each list and then add them together. Compare these figures to your budget. As an example, if your monthly income is $2,000, and you have $1,400 in essential expenses and $1,000 in non-essentials, then you know you need to trim your expenses.

Step 5

Analyze your non-essential list and determine what you can do without. Regularly eating out is a big expense that can be eliminated by cooking at home. Going out to movies can be replaced with DVDs. Gasoline expenses can be reduced with carpooling. Frivolous spending, such as spontaneous luxury purchases, should be eliminated. Even some essential items can be trimmed, such as more economically using electricity, raising deductibles on insurance and getting a roommate to share rent. Try to reduce your total expenses well below your income level so you can start saving money.

References

About the Author

C. Taylor has been a professional writer since 2009. He has written for online publications and the "Journal of Asian Martial Arts." Taylor specializes in martial arts, traveling, sciences and computer repair. He received a Master of Science in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences from the College of Charleston.